CSCO stock dropped over 7% in Thursday’s trading after Cisco Systems Inc. (NASDAQ:CSCO) released its Q1 2020 results in which it gave a lackluster sales guidance for the second quarter. The sales estimates missed projections, which is an indication that the company is postponing purchases of hardware. This is because of growing economic and political uncertainty and the US-China trade dispute.
Lowers Sales Guidance for Q2
In a statement on Wednesday, the company indicated that it now expects its second-quarter revenue to drop by 3% to 5% from last year. Cisco stated that sales in the quarter will be around $11.9 billion, which is below analyst estimates of $12.8 billion. Equally, the predicted adjusted profit will be between $0.75 per share and $0.77 per share, missing on analysts’ forecasts.
Cisco beat analysts’ estimates in the first quarter that ended on October 26 and reported revenue of $13.16 billion against analysts’ projection of $13.09 billion. For Q1 2020, the company reported earnings per share of $0.84 versus $0.81 predicted by analysts.
If Q2 revenue declines the way Cisco expects, it will be the first time the company will be reporting a drop in sales since 2017.
At the time of writing, CSCO stock is trading lower by 7.47% at $44.87.
Political and Economic Uncertainty will Affect Sales
According to Chuck Robbins, the CEO of Cisco, the company faced some macroeconomic pressure in Q1.
Robbins is trying to change Cisco into a networking software and services company. Although the segment is starting to deliver results, the majority of the company’s sales come from machines. He cited political uncertainty, such as the unrest in Hong Kong, uncertainty in Latin America, and Brexit, as the things affecting business confidence.
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The company has indicated that the challenge it is facing is from cable companies that are extending the life of their gear instead of replacing them. Equally, concentration of phone providers on 5G deployment is adding to the slowdown. Cisco doesn’t sell base station radio towers hardware, but it will start selling this when traffic picks up in data centers.
CSCO stock has fallen about 24% over the past three months.
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